Biopharmaceutical Outsourcing Trends: The Next Decade

Pharmaceutical industry outsourcing, particularly for CROs and CMOs, has grown during the past 10 years, and indications are that it will continue to grow through the next decade. Entire new outsourcing industry sectors, such as high-throughput screening services, have become multibillion-dollar industries, and many functions formerly considered essential, such as in-house animal toxicology testing, now rarely exist within pharmaceutical companies. Pharmaceutical developers and manufacturers of all sizes, but particularly the largest international companies, now routinely outsource many tasks and functions formerly considered in-house core competencies. The underlying nature of the pharmaceutical industry has changed as cost management and process efficiencies become critical to survival. Outsourcing has become an industry norm, and now includes the full range of corporate activities—from screening and lead identification, to toxicology and other preclinical studies, clinical trials, marketing, and manufacturing at all scales.

Outsourcing has proven effective at reducing operational and infrastructure costs. During this period, however, the pharmaceutical industry has seen a significant reduction in its R&D efforts and new product pipelines. This has caused many firms to implement further internal cutbacks and increase their outsourcing, as a way to reduce payroll and capital expenditures. This economics-driven increase in outsourcing has, in some ways, contributed to decreased long-term industry productivity. But even if outsourcing is ultimately proven not to be cost-effective in terms of supporting innovation and new product R&D, outsourcing will continue to experience growth. It is often the only option available to companies that must adapt to lower profits due to ailing R&D pipelines and products going off-patent.

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Although pharmaceutical outsourcing will continue to increase throughout the next decade, it is likely to do so at a lower rate than in the past. BioPlan Associates' annual biomanufacturing report shows that the top factors likely to create capacity (production) constraints are economics driven, including facility constraints, inability to hire experienced technical staff, and physical capacity of equipment.

The study also evaluated 24 areas of outsourcing, with the primary outsourced activities include product characterization testing (70% of companies outsource at least some of this activity). Other tasks now routinely outsourced include validation services (69%), toxicity testing (65%), analytical testing (61%), and fill–finish operations (60%).

Figure 1: Selected data: average change in biomanufacturers’ budgets 2009–2012. (FIGURE COURTESY OF THE AUTHOR)

Currently, at about $25-billion annual revenue, pharmaceutical outsourcing will likely to grow at around 10% annually to over $40 billion per year in 5 years and about $60 billion in 10 years. The industry now appears to be slowly recovering and is starting to invest more in R&D. The recent BioPlan annual survey has also found that budgets for R&D and manufacturing are again rather uniformly increasing at a healthy rate; and many analysts project rosy futures for CROs and CMOs as industry R&D and manufacturing activity picks up.

Much of the growth in outsourcing in the past decade, particularly the most dramatic and rapid growth, has taken place in developing countries, particularly China and India. Besides developing countries offering lower costs, these countries have their own rapidly growing domestic pharmaceutical markets and industries. Many of the largest global pharmaceutical companies invest billions in establishing their own R&D centers and outsourcing to CROs/CMOs in these countries. These actions provides access and a corporate presence in these rapidly growing markets.

However, as the wage gap in these emerging economies narrow, labor and other outsourcing costs are increasing. In the future, we will see shifts in outsourcing to lesser-developed countries. At the same time, Chinese and Indian firms will shift to compete more on technology and quality, rather than on price.

Throughout the next decade we will continue to see a shift towards developing biopharmaceuticals rather than drugs, with these products offering increased profits and protection against eventual generic-drug competition. Many profitable recombinant protein and antibody products are coming off-patent. Over the next decade, there will be a dramatic increase, likely a doubling, in the number of biopharmaceutical products as biosimilar, biobetter, and biogeneric versions of current products enter world markets.

Much of the R&D and manufacturing of these new biosimilar products will be performed by CROs and CMOs that focus on productivity and cost-savings. Technological advances are making it easier and cost-effective to outsource manufacturing, including the use of disposable bioprocessing systems rather than more expensive fixed stainless-steel systems. Advances in screening and analytical testing are also driving outsourcing to firms providing these increasingly specialized and resource-intensive services. As documented in BioPlan's Top 1000 Global Biopharmaceutical Facilities Index (www.top1000bio.com), the increase in worldwide CMO and other bio/pharmaceutical outsourcing of the past decade will certainly continue through the next decade.

In this special outsourcing issue of BioPharm International, articles address CMO and CRO perspectives, performance metrics, quality issues, and more.

ERIC S. LANGER is president of BioPlan Associates, tel. 301.921.5979, elanger@bioplanassociates.com.